Capital Budgeting techniques s

Vulture Partners, a private equity organization specializing in distressed company investing, was interested in purchasing a company called Turnaround. Mr. Fang, a general partner at Vulture, made the following projections to value Turnaround ($mm):

Year 1 Year 2 Year 3 Year 4 Year 5
Revenue
200 210 220 230 240
Costs
(100) (105) (110) (115) (120)
EBIT
100 105 110 115 120
D NWC
+3 +3 +4 +4 +5
Turnaround had $220 million of net operating losses (NOLs) that were available to offset future income. At the beginning of year 1, the company had $75 million of 8% debt (coupon & yield) which was expected to be repaid in three $25 million installments beginning at the end of year 1. The relevant tax rate is 40%. Mr. Fang believed that an appropriate unlevered beta for Turnaround was 0.8. The long-term treasury yield was 6.5 percent and the market risk premium 7.0%. Net cash flows were forecast to grow at 3 percent per year in perpetuity after year 5. Calculate the APV of Turnaround and do a sensitivity analysis on the perpetuity growth rate at 2 and 4 percent.

Also, will you use excel formulas in your solutions/answers or will provide everything calculated using non-excel formulas?

See attached file for full problem description.